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Premium Sellers vs. Option Buyers
- Thread starter Squilly_D
- Start date
There is a link to just email me directly when you go to PM someone. Too tired to empty out my inbox right now.
Don't see it, I'll just post in the forum:
I've been following a few of your threads, and it sounds like you're managing a shop which has a familiarity with options. I mostly trade with volatility and skew driven plays, term structure, long and short gamma, and occasionally some second order hedging with vol products (VIX, VXX). I'm considering working with a prop shop or backer and could put up my own capital as well when appropriate.
I'm wondering if you could suggest any firms to work with.
Optimally I would like to run 500K -2M in risk cap and probably use something such as microhedge or livevol x for tech.
Thanks for your thoughts.
I've been following a few of your threads, and it sounds like you're managing a shop which has a familiarity with options. I mostly trade with volatility and skew driven plays, term structure, long and short gamma, and occasionally some second order hedging with vol products (VIX, VXX). I'm considering working with a prop shop or backer and could put up my own capital as well when appropriate.
I'm wondering if you could suggest any firms to work with.
Optimally I would like to run 500K -2M in risk cap and probably use something such as microhedge or livevol x for tech.
Thanks for your thoughts.
Quote from Martinghoul:
A trade's positive expected value isn't necessary and sufficient for the trade to be a good one.
You are correct, but it is often a good starting point. I surmise that everyone on this message board will be aware of this most elemental equation: Expectancy = (Probability of Win * Average Win) â (Probability of Loss * Average Loss). I aver that although it does not guarantee success, your trading system should begin a positive expectancy. The other half of the picture of course, is risk management. The natural bias that most traders have is to be keen for high probability systems with high reliability. That is regarding the topic at hand, that is premium selling. Premium selling often delivers high probability and high reliability, particularly in this market. Traders are too focused on the bias that you need to be right. As students, it is taught in school that 94 percent or better is an A and 60 or below is an F. Nothing below a C+ is countenanced. Everyone is looking for high reliability entry systems, but it is expectancy that is the key. Of course, you cannot ignore sagacious risk management.
I have had persistent success over long periods of time evolving my education in the markets, and it involved constantly testing trading ideas and quantifying them. I suggest anyone following this thread to really take a hard look at their trading and ask if it is quantifiable. Many think and convince themselves they have a system, but they have really never tested their ideas over a statistically significant time period. If anyone gathers anything from this thread, please do take care to make certain you have thoroughly tested your ideas. Too many traders execute on just blind hunches relying on flimsy technical analysis while making many Type I mistakes (which I term as excessive credulity). The persistent premium selling has delivered success with respect to both high probability and high reliability for many years running. As this trend persists, what is so perilous is that traders obviate the need for risk management. This behavior, while dangerous, is understandable and predictable. In such times of peace, the army stops producing shields, arms, and defenses.
I am reminded of this time in the markets because it shares a frontier with the time I had my last difficulty in the markets back in 2007. The markets were dancing a similar waltz, and I lost a modicum of money because I found myself ill-prepared. I was short premium and short volatility. As I like to point out, "The mouse with one hole is quickly cornered." Right now, as I look out into the horizon, far too many speculators have no safety harnesses belted. They have nary a single hole for escape. The climbing of the mountain has been so facile, they left their safety equipment at the last mountain camp at the lower altitude. Where I made my mistake before, I see the same setup unfolding. This I identify with the following: âThe Bull Market Syndrome. People, when they are met with success, take personal credit for it (bull markets breed geniuses), and when they are met with failure, blame bad luck.â I share that I procured this past definition from a favorite website of mine, www.dailyspeculations.com, on a piece submitted by Ralph Vince. It is a site by Victor Niederhoffer. I recommend others to peruse the site from time to time, for education and wisdom. Rest assured that as of today, my own money and those of my clients' are not in the same position as back in 2007. From, a fellow trader.
Quote from Maverick74:
OK, I'm going to give you a different story so maybe you can get an idea of what's out there. We had a guy who on Thursday at the close, day before SPX settlement, sold I don't even remember how many thousands of SPX puts on the closing print. He sold them out of the money and can't remember what prices he got, simply that he did it. I saw the order go through at 3:14 pm central time. By the time I saw the order, they were filled. Risk also saw it but it was too late to do anything about it. We can't close the position and we can't hedge it as the options will go through SET on the Friday morning open. This guy actually got lucky and they expired worthless. I think the firm actually kept the profits. But this is the type of behavior we are talking about. In this particular case, there was nothing one could do. And the trader knew that.
Let me further add this stunt has been done at several prop firms. As I said before, when dealing with options, there are many ways to burn the house down. And most involve a single match and no smoke.
that guy was put on the street ,no ?
Quote from OddTrader:
Perhaps also try this thread: best ways to go long/short volatility...
http://www.elitetrader.com/vb/showthread.php?s=&threadid=248602&perpage=40&pagenumber=2
I've gained a lot of experience trading options in the last 8 months just by watching tastytrade on a daily bases. I needed more actionable content (on the job training). I love it! I personably believe that i'm ready for various market conditions from the shows teachings. Above all, I stay small (credit or debit), diversified through strategy, asset class and time, no one trade does significant damage to my portfolio.
Quote from Maverick74:
We didn't. Ever trade at a prop firm? A lot of shit like this happens all the time. I could tell you some stories. This isn't even the worst of them. This is nothing compared to what I've seen. At the end of the day, what they all have in common is a bunch of guys that can't make money trading who resort to premium selling as a crutch.
It sounds like these "Traders" sucked all around...and gave premium selling a bad name to boot! One needs to know where it fits in an overall portfolio strategy...not just sell it willy nilly.
Quote from Maverick74:
OK, I'm going to give you a different story so maybe you can get an idea of what's out there. We had a guy who on Thursday at the close, day before SPX settlement, sold I don't even remember how many thousands of SPX puts on the closing print. He sold them out of the money and can't remember what prices he got, simply that he did it. I saw the order go through at 3:14 pm central time. By the time I saw the order, they were filled. Risk also saw it but it was too late to do anything about it. We can't close the position and we can't hedge it as the options will go through SET on the Friday morning open. This guy actually got lucky and they expired worthless. I think the firm actually kept the profits. But this is the type of behavior we are talking about. In this particular case, there was nothing one could do. And the trader knew that.
Let me further add this stunt has been done at several prop firms. As I said before, when dealing with options, there are many ways to burn the house down. And most involve a single match and no smoke.
Jesus! I'm glad I manage my own money now knowing how reckless some "professionals" can be. Good to hear this info Mav!
Quote from thoreau777:
You are correct, but it is often a good starting point. I surmise that everyone on this message board will be aware of this most elemental equation: Expectancy = (Probability of Win * Average Win) â (Probability of Loss * Average Loss). I aver that although it does not guarantee success, your trading system should begin a positive expectancy. The other half of the picture of course, is risk management. The natural bias that most traders have is to be keen for high probability systems with high reliability. That is regarding the topic at hand, that is premium selling. Premium selling often delivers high probability and high reliability, particularly in this market. Traders are too focused on the bias that you need to be right. As students, it is taught in school that 94 percent or better is an A and 60 or below is an F. Nothing below a C+ is countenanced. Everyone is looking for high reliability entry systems, but it is expectancy that is the key. Of course, you cannot ignore sagacious risk management.
I have had persistent success over long periods of time evolving my education in the markets, and it involved constantly testing trading ideas and quantifying them. I suggest anyone following this thread to really take a hard look at their trading and ask if it is quantifiable. Many think and convince themselves they have a system, but they have really never tested their ideas over a statistically significant time period. If anyone gathers anything from this thread, please do take care to make certain you have thoroughly tested your ideas. Too many traders execute on just blind hunches relying on flimsy technical analysis while making many Type I mistakes (which I term as excessive credulity). The persistent premium selling has delivered success with respect to both high probability and high reliability for many years running. As this trend persists, what is so perilous is that traders obviate the need for risk management. This behavior, while dangerous, is understandable and predictable. In such times of peace, the army stops producing shields, arms, and defenses.
I am reminded of this time in the markets because it shares a frontier with the time I had my last difficulty in the markets back in 2007. The markets were dancing a similar waltz, and I lost a modicum of money because I found myself ill-prepared. I was short premium and short volatility. As I like to point out, "The mouse with one hole is quickly cornered." Right now, as I look out into the horizon, far too many speculators have no safety harnesses belted. They have nary a single hole for escape. The climbing of the mountain has been so facile, they left their safety equipment at the last mountain camp at the lower altitude. Where I made my mistake before, I see the same setup unfolding. This I identify with the following: âThe Bull Market Syndrome. People, when they are met with success, take personal credit for it (bull markets breed geniuses), and when they are met with failure, blame bad luck.â I share that I procured this past definition from a favorite website of mine, www.dailyspeculations.com, on a piece submitted by Ralph Vince. It is a site by Victor Niederhoffer. I recommend others to peruse the site from time to time, for education and wisdom. Rest assured that as of today, my own money and those of my clients' are not in the same position as back in 2007. From, a fellow trader.
It's taken a bit of work to get them to this point, but I've managed to convince a few traders to always have some Taleb style units on both ends of their book, in something liquid, and something the rest of the market will demand when things fall apart. You can usually pay for these by using a various versions of diagonal ratio spreads and a bit of delta hedging.
Maverick, Thanks for your posts on this thread. I had a blast reading them!
Too funny!!
Hilarious!!
Too funny!!
Hilarious!!
Quote from RedEyeFly:
It's taken a bit of work to get them to this point, but I've managed to convince a few traders to always have some Taleb style units on both ends of their book, in something liquid, and something the rest of the market will demand when things fall apart. You can usually pay for these by using a various versions of diagonal ratio spreads and a bit of delta hedging.
RedEyeFly, did you ever read Victor Niederhoffer's follow-up book to "The Education of a Speculator"? It was called "Practical Speculation", and it offers many profitable strategies to improve one's trading. It has very high reviews, and is brimming with erudition. Here is the Amazon link:
http://www.amazon.com/exec/obidos/tg/detail/-/0471443069/002-7904697-8024029